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PTIN class action lawsuit affects all tax return preparers

Tax practitioners across the country have started receiving emails notifying them that if they do not opt out, they will be included in the class of plaintiffs in a lawsuit that is currently pending before the U.S. District Court for the District of Columbia. The class action lawsuit includes as plaintiffs everyone who paid the IRS money to obtain or renew a preparer tax identification number (PTIN) on or after Sept. 30, 2010, unless they choose to opt out of the class. Practitioners have until Dec. 7, 2016, to opt out. The plaintiffs in the case estimate that some 700,000 to 1,200,000 preparers are affected (Plaintiffs’ Amended Class Action Complaint ¶32 (8/7/15)).

The case, Steele, No. 1:14-cv-01523-RCL (D.D.C.), was filed by three tax return preparers who are challenging the legality of the IRS’s PTIN fees. The questions raised by the plaintiffs include:

Does the IRS have the legal authority to charge a fee to obtain a PTIN?

Does the IRS have the legal authority to charge a fee to renew a PTIN?

Are the fees imposed excessive?

The plaintiffs argue that PTIN fees are illegal for two reasons: First, that the IRS has no authority to charge the fees because tax return preparers receive no special benefit in return for the fees, only an identifying number. And, second, that even if the IRS is authorized to charge PTIN fees, the amount it charges is far in excess of the costs the IRS incurs to issue the PTIN. (The IRS currently charges $50 (including a third-party vendor fee) to obtain or renew a PTIN.)

PTIN fees were originally introduced by the IRS to fund its tax return preparer regulation program, which was struck down by a federal appeals court in Loving, 742 F.3d 1014 (D.C. Cir. 2014). Although the program was struck down, the IRS continued to require the use of PTINs and to charge a fee. (Until 2010, the use of PTINs was not mandatory, and the IRS charged no fee to issue them.)

The plaintiffs allege that the IRS has collected over $175 million in PTIN fees (Plaintiffs’ Amended Class Action Complaint ¶26 (8/7/15)). They are seeking the recovery of either all PTIN fees paid or the excessive portion of the PTIN fees.

The district court granted the plaintiffs’ motion to certify the lawsuit as a class action on Feb. 9, 2016. Lawyers representing the plaintiffs are now contacting members of the class (return preparers who have paid to obtain and/or renew a PTIN) notifying them of the suit and that if they want to opt out of the class, they must do so by Dec. 7.

The notice tells recipients that only preparers who remain in the class will have the possibility of receiving money or benefits from the class action lawsuit. If the plaintiffs prevail in the lawsuit (or settle) and obtain money or benefits as a result, class members will be notified of how to apply for their share. By participating in the class, practitioners are agreeing to pay class counsel and co-counsel up to 30% of any recovery obtained in the lawsuit.

However, the notice warns, class members who do not opt out give up the right to sue the IRS on their own behalf about the same legal claims that are the subject of the suit—regardless of whether the plaintiffs ultimately win or lose the class action suit.

The notice contains instructions on how potential class members can opt out of the lawsuit, which involves sending a letter with specified information in it to the lawsuit’s administrator by Dec. 7.

The AICPA is not involved in this lawsuit and has no position regarding the suit.